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Supplemental Needs Trusts and Long-Term Care Planning

All parents worry about their children’s futures. Parents want their children to have happy lives and to be assured that their children will not have to struggle for basic needs. Parents of children with special needs often are particularly anxious about what the future holds for their children, wondering who will care for their children after their death or disability. Parents of children with special needs should be aware of a powerful estate planning tool called a supplemental needs trust that can help them provide for the long-term care of their children with special needs.

What Is a Supplemental Needs Trust?

A supplemental needs trust, sometimes called a special needs trust, is a trust fund designed to allocate assets to the long-term care of a person with special needs while still allowing that person to qualify for government benefits such as Social Security, Medicaid, subsidized housing and vocational training. Since a trustee manages the assets in the trust and the beneficiary is not at liberty to spend them however he or she wants, the government does not include those funds when calculating income for the purposes of determining benefit eligibility.

Rules Governing Supplemental Needs Trusts

The trust document must state that the trust funds are for “supplemental and extra care” beyond what government benefits provide. There are rules about what the money in supplemental needs trusts can go toward. For example, Medicaid rules prohibit trustees from buying housing or food for beneficiaries with the funds in supplemental needs trusts. However, trustees must carefully interpret such rules. For instance, trustees may use supplemental needs funds to make housing more accessible for a person with a disability.

Who Can Create a Supplemental Needs Trust?

Funds for special needs trusts can come from two different sources:

Third-party trusts: Relatives of a person with special needs, usually parents or grandparents, can fund a supplemental needs trust. Relatives often establish such trusts as testamentary trusts in their wills, rather than giving a lifetime gift, to ensure the beneficiary will remain eligible for government benefits. However, relatives can set up these trusts during their lifetimes, as well. The assets in the trust at the death of the supplemental needs beneficiary can then be distributed to other beneficiaries without the need to reimburse the government for benefits paid on behalf of the supplemental needs beneficiary.

First-party trusts: If a person with special needs has money from a court judgment or an inheritance, those funds may go into a supplemental needs trust so the person remains eligible for government benefits. The person’s relatives or the court must create the trust, and to the extent of the benefits paid, the government receives any funds remaining in the trust when the supplemental needs beneficiary dies. Any funds left after the government is paid can be distributed to other beneficiaries.

Talk to an Attorney

Parents may feel overwhelmed by the task of planning for the future of a child with special needs. However, the process can go smoothly with the help of a skilled estate planning attorney. If you have questions about how to provide for the care a loved one with special needs, contact an adept estate planning attorney who can discuss your situation with you and advise you of your options.